As you transition from your younger self to adulthood, you may get into debt as early as your college life. The average American debt typically varies by age, with other people having debts accruing to hundreds of thousands of dollars.
One easy way out of that situation is through debt settlement. It involves negotiating to pay a reduced amount than the original debt you owe. Luckily, there’s no need to go through the entire process alone! Here’s some insight into the basics of debt settlement — and how you can get the help you need.
What Exactly is Debt Settlement?
Whether you know it as debt adjustment or debt relief, debt settlement is an agreement between creditors and borrowers stipulating a reduced payment from the borrower to be seen as full payment. Simply put, it’s a debt reduction agreement between creditors and borrowers.
While you could DIY, it’s often best to employ the services of a debt relief company like you’ll find at www.FreedomDebtRelief.com. The companies usually have expert negotiators whose mission is to get clients the best possible savings, including customizing services to suit individual needs. Sometimes, experienced guidance may be what you need to pull through the process.
Debt Settlement: The Process
Debt settlement, to reiterate, is best left to a third-party company. Besides nailing down the cost of their services, the timeline, and the overall amount you’re likely to spend, here’s what the process could look like:
- Explain your financial woes to the debt relief company.
- Stop making any payments to the creditors but instead deposit money to a savings account under the debt settlement company.
- Upon reaching a certain threshold, the company could negotiate with all your creditors to minimize the debts to a significantly lower amount than what you currently owe.
- The settlement may be lower monthly premiums, a one-time payment in full of the reduced amount, or a debt discharge.
- With successful negotiations, the negotiators may contact you for approval and authorization.
- You will have to agree to the new terms for the settlement to complete.
- The process repeats for each creditor you owe.
- Once all your debts are clear, you now have the financial freedom you seek.
The Advantages of Debt Settlement
Negotiating for reduced payments is often the best way to get out of debts. The overall benefit of debt settlement is paying an amount lower than your outstanding debt.
Another advantage is the avoidance of bankruptcy. Remember that declaring bankruptcy can significantly damage your credit score. And in some cases, it could affect your employability. Settling your debts is by far the best choice you can make for your financial growth.
The Risks of Debt Relief
Like most other good things in life, debt settlement might come with various risks:
- Lack of settling if the creditors choose to reject the offer.
- The possibility of increased debt if you face hefty fees in the process or the settlement deal falls through, yet interest piles up.
- Your credit score might get damaged when you stop making payments to the creditors to give room for negotiations.
- Creditors may also sue you if they don’t receive your payments.
- The entire process can be lengthy, taking as much as a couple of years.
- Your forgiven debt may be subject to IRS scrutiny, as more than $600 of forgiven debt is usually taxable.
After assessing the risks, you may find that debt settlement might not be best for you. Worry not since you have multiple other options. And yes, you can still work with a debt settlement company!
Some alternatives to debt settlement include debt consolidation loans, debt management programs, credit counseling, or a balance transfer. These options may have a lesser risk than debt relief.
The Bottom Line
Nothing should stop you from gaining financial freedom now that you know the basics of debt settlement and the alternate options at your disposal. Well, all that’s left is enlisting the help of a debt settlement company — you’ll be debt-free within no time.